DOL proposed rule shields employers from costly employee misclassification claims

The U.S. Department of Labor (DOL) recently unveiled a proposed rule for classifying workers as either independent contractors or employees. The effort is important because the Fair Labor Standards Act (FLSA) covers employees but not independent contractors. Therefore, contractors aren’t entitled to minimum wage or overtime pay. The issue has gained momentum because of the rising prevalence of Uber, Lyft, Instacart, and other companies that rely on independent contractors. Their workers have filed a wave of lawsuits claiming they were shorted pay or entitled to more benefits because they were performing work as employees. The new rule is an effort by President Donald Trump’s administration to clarify the circumstances when a company will be designated as an “employer” for a particular individual for federal wage and hour law purposes.

Proposed rule

Issued on September 22, the proposed rule reviews the “economic reality” between the worker and the company. It emphasizes contractors must be in business for themselves, rather than being economically dependent on the company for work. The rule uses a five-factor test to complete the analysis, which is different than the number of factors used by various courts, and less than the number of factors previously set forth by the DOL. For example, a California bill, which took effect last January, employs a three-part test to decide whether a worker can be classified as a contractor.

Although no single factor is dispositive, the DOL proposed giving greater weight to two factors in particular (i.e., the “core factors”):